The main reason behind the growing interest of people across the world in cryptocurrencies is the decentralized nature of bitcoin. Bitcoin has become the only fastest-growing cryptocurrency that is decentralized in nature and follows a peer-to-peer network.
It is designed to make borderless transactions by charging low transaction fees as compared to traditional currency systems. Investing and trading in bitcoin is a rollercoaster ride because traders experience a lot of emotions while waiting for the price to increase and sometimes experience losses.
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Cryptocurrencies are quite different from fiat currencies in their design, features, and functionalities. The crypto exchanges from where cryptocurrencies can be purchased and sales offer different policies, payment methods, and fees to its users.
It is first crucial to learn about the working of the bitcoin network and crypto exchanges. Most of the hacks and frauds that take place are in crypto exchanges.
There are some major challenges that bitcoin traders face while trading bitcoin that we will discuss in this article.
Challenges in Bitcoin Trading
- The cryptocurrencies like bitcoin are designed to be transparent. Initial Coin offerings were quite unsuccessful, and there is a myth that every bitcoin or other crypto project is decentralized, but in reality, they are not. Similar to traditional currencies and economies, the collaborations and negotiations that take place in the bitcoin world are controlled and governed by power. Because of ultimate transparency and less accountability, bitcoin provides many advantages, but still, the use of blockchain remains undermined in many industries.
- The major problem that people use in bitcoin trading is the security of digital tokens. The very imperative features of bitcoin include transparency and anonymity, and these are the major reasons behind breaches and hacks that take place in crypto exchanges. The hackers have become masterminds, and with the help of advanced technology, they are finding more refined ways to steal or hack networks.
- Some people consider that the bitcoin network charges a low transaction fee for making borderless transactions. Bitcoin is somewhat similar to banks because not all the crypto exchanges charge fewer fees from users and even add extra fees like maker and taker fees. Only a few reputed and genuine crypto exchanges charge a 0.2% fee for each bitcoin transaction.
- The ICOs were developed and introduced in the financial world to entice investors, but most of the ICOs were unsuccessful, and even the only outcome was unlimited scams. Therefore, it is crucial for crypto exchanges to have strict rules and policies to make crypto tokens reliable.
- Bitcoin is designed to allow quick and cheap transactions. Still, there are many delays in the processing of bitcoin payments because the miners take a lot of time in verifying bitcoin transactions. It is estimated that each bitcoin transaction takes around 43 minutes to get completed. Each transaction is first verified and then recorded on the blockchain to be protected from fraudulent acts. The blockchain uses an encryption technique and cryptography to ensure that each transaction is accurate and prevents unauthorized access.
- Not all crypto exchanges are regulated following the policies set, and this increases the scope for fraudulent activities. It is believed that some of the crypto exchanges often use trading bots to manipulate the prices of crypto tokens which is one of the major challenges for people that invest in cryptocurrencies.
- For every crypto exchange and trading platform, there must be policies and regulations set that must make sure about the transparency, anonymity, and protection of consumers. The absence of any regulation will be a pitfall for the cryptocurrency world.
- There must be enough liquidity in the financial market because if there weren’t enough, it would lead to an imbalance in the economy. Things may get out of control from the hands of central authorities or people that control the market. If the liquidity of any asset is cut down, it provides a chance for large crypto holders to manipulate the bitcoin and other cryptocurrency prices. This will, in turn, make the market more volatile, and there will be wild swings in the price of bitcoin.